As the accounting profession enters new assurance markets, many decisions as to the best manner in which such services can be provided must be addressed. For instance, the traditional audit/attest‐reporting model may not provide adequate information to justify the cost of assurance services in some situations. Alternatively, potential clients may turn to other assurance providers who are willing to provide better quality services and/or more informative assurance reporting. In this study, we examine the impact of a two‐tier reporting model on the market demand for assurance services on software product reliability. One tier uses the traditional binary report common with audit/attest services where a standard report notes whether a software product achieves a minimum standard, while the other tier of reporting provides for a graded assessment of multiple levels of quality. The results indicate that when a graded report that differentiates high‐quality vendors from moderateor low‐quality vendors is available (1) high‐quality vendors are willing to pay for the report, (2) buyers are willing to pay a premium for the reduced risk associated with a highquality opinion, and (3) high‐quality vendors are able to drive other vendors with inferior products out of the market. When only a binary report is available, the market is more confused and chaotic. Vendors are not able to signal quality clearly; the high‐quality vendor is not able to dominate the market; there is less vendor demand for the assurance report; buyers are unable to determine their desired product and make less total profit. These results have several implications for the accounting profession and researchers as they work on the design of new assurance service models.

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